Financial Independence-Retire Early(er) in Australia from the female perspective.

Geoarbitrage: all the cool kids are doing it #1.

When Tim Ferriss coined the term ‘geoarbitrage’ about 10 years ago it meant outsourcing work to a cheaper region or country, usually over the internet. Nowadays it’s clear, after listening to podcasts and reading FI blogs, the term has morphed in the FIRE world into a descriptor of when a person geographically moves to an area that has a much lower cost of living.

Traditional retirees have been doing this for years… both sets of my grandparents did this in different ways after the breadwinners retired. One set moved up to the Gold Coast in the late 1960’s when the cost of living was far cheaper than Melbourne and the weather was far better. The other set stayed in Victoria, but sold their house in Murrumbeena and moved to a 1/4 acre lot in Inverloch, in Gippsland. They bought a caravan and spent 6 months of the year up in Cairns, during their beautiful winters, and then they’d drive down to Inverloch to spend time with us during Melbourne’s beautiful summers. Both sets of grandparents chased the sun but did it in ways that were gentle on the finances and offered them all a great quality of life.

Nowadays it’s becoming more common for traditional retirees to look at moving to a country that offers far more bang for the buck than simply living in Australia does. A couple of months ago I was walking the dogs and I started up a conversation with a guy who lives a couple of streets away. He spends 8 months of the year in Malaysia with his new wife and tiny child and rents out his house in Melbourne while he’s away. He loves the lifestyle, the climate and how cheaply he can live there and he only comes ‘home’ to see his adult children.

Also, a very good friend of mine is looking at giving up work in the next couple of years and has almost fully decided to up stakes and live in Thailand when he finally pulls the pin on working. He’s travelled there a fair bit, even having extensive dental work done there that was prohibitively expensive for him in Australia, and he knows he could buy a near-new apartment with a pool and aircon within a stone’s throw of the beach for what we would consider peanuts. He knows that with his investments and the pension, he would be able to enjoy a lifestyle that would be out of reach for him here.

People in Australia also look towards Bali, but the disadvantage with beautiful Bali is that Indonesia doesn’t let foreigners buy land. You either have to buy something as a silent partner and hope like hell that they don’t walk away with your money, (which happened 2 years ago to someone I know…yikes!), or you go over there and sign a long lease on a property. I saw this ad on Facebook yesterday and thought that it was a perfect example of Geoarbitrage in action.

In today’s exchange rate, $100,000USD equals $125,140AUD. Considering that the prices of residential real estate in Australia are some of the most expensive in the world, a person could free up a lot of equity in their house by selling their million dollar property, tucking the surplus into investments and living the high life in that Balinese villa for the next 30 years. Who knows? Considering the age s/he retires and their state of health, that 30-year lease might just see them out. Bali has the schmicko hospital that was built there after the Bali bombings, the cost of living there is minuscule and family and friends are a short plane ride away. (Well, to be fair, Australia is so big and so isolated that very few places are a short plane ride away, but you get my drift.) It’s a viable strategy for those who love the tropical climate and the relaxed lifestyle that places like Bali and Thailand offer.

But what if you don’t want to move to another country to live, but at the same time you don’t want to work till you’re 70? What if you want to get your toe into the property market but price tags of 1.5 million dollars for a 3 bedroom fixer-upper in McKinnon are seriously out of your reach?

Geoarbitrage isn’t just a tool to use to inch closer to early retirement. It’s possible to utilise it for other reasons as well. I have a friend in his 30’s who really wanted to own his own home but knew that the million dollar+ price tags of Melbourne houses were always going to be beyond his reach. He decided to think outside the box and bought a lovely little house in Ballarat for less than a third of the price that he would have paid where he was originally living. For those who don’t know, Ballarat is a regional town about 120kms west of Melbourne. It’s a large city of around 110,000 people, so it has pretty much all of the amenities that you’d need … including a university that my youngest son, Evan21, will be going to for the next 3 years. My friend J is really happy with the move, with the only practical downside being his commute. He travels into the city by train, but because it’s a country-line train there are fewer services, so he really doesn’t want to miss his train! He’s already negotiated a couple of “work from home” days a week, but of course, if the commute gets too arduous, there’d be nothing stopping him from looking for a job closer to home. Flexibility is the key.

With a concept like geoarbitrage, you have to seriously weigh up what you are gaining vs what you are giving up. There’s always going to be a downside, but the thing you have to measure is whether the advantages massively outweigh the disadvantages. The decisions that people are going to make about whether or not to do it are as individual as they are. Some people are deeply rooted to a place for dearly-held emotional reasons and they wouldn’t DREAM of relocating, whereas others could quite easily sell up and move on without a backwards glance at the place they’ve left behind. Then there are all the people who fall into the middle ground, which is probably most of us.

When I next write about this, it’ll be a post entitled, “Geoarbitrage: all the cool kids are doing it #2”, where I’ll share how I tweaked the concept to come up with a move that suited the Frogdancer family’s situation. It was something I never expected I would ever do, but in life there’s something I’ve learned: never say never!